Throw away anything you know about investing – it’s just not working. The common wisdom on Wall Street is useless. Stocks are behaving in ways that bewilder even the most seasoned trader. Heck, Cramer’s stumped, and he’s been in the business for 30 years.
It’s a virtual Bizarro World out there right now. Up is down, north is south – you get the point. Take this, for example: A rally in the cyclical stocks, those that do well during a strong economy, usually sparks a sell-off in the staples (Think food and drug companies.) The opposite is also true. A weak economy makes names like Colgate-Palmolive and Procter & Gamble more attractive because they offer stability during a downturn. It’s a trend that has, more or less, always been true.
But not in this market. IBM and Hewlett-Packard have declined right along with Colgate. FedEx and Norfolk Southern have plummeted right along with P&G. They’re supposed to rise and fall in inverse proportion to each other, but they’re all at new lows.
Utilities are another sector that investors turn to during a tough market for stability. But this sector’s buckling under the weight of a tight credit market and decreased electricity use.
Increased insider buying mixed with less insider selling usually indicates a bottom, but that hasn’t been true either. Management at Coca-Cola and Freeport-McMoRan has been buying up their own shares, but those stocks have been falling nonetheless. The same thing has happened in GE, Bank of America, Wachovia and JPMorgan Chase.
The list of once-reliable indicators goes on and on: Pervasive bearish sentiment has not kicked off a buying spree. New lows haven’t rebounded into even small gains. All the money sitting on the sidelines, which almost every pundit said would rush back into the market, is still sitting there. Oversold/overbought oscillators haven’t been able to tell when the market would snap back in the other direction. Even Warren Buffett’s oracle powers have been off.
Cramer’s worst-case scenario for this market – and we’re talking the death of the financials, dividend cuts and more here – puts the Dow at 5,320, another 15% lower than present levels. The possibility makes him hesitant to recommend Wal-Mart, Verizon and McDonald’s, which are at attractive levels right now.
The bottom line is that this market’s moves are uncharted, Cramer said. So investors should stay diversified, preserve capital and hold tight until we get the legitimate rally we’ve been waiting so long for.
Cramer's charitable trust owns Freeport-McMoRan, GE, Hewlett-Packard, JPMorgan Chase and Wal-Mart.
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